Japan vows to shore up Elpida

STATE SUBSIDY: The Japanese government plans to inject ¥30 billion in the chipmaker in an aid package that includes a possible ¥20 billion capital injection by Taiwan Memory

REUTERS , TOKYO

Japan pledged to shore up Elpida Memory Inc with public money, bringing the total aid coming to the loss-making chipmaker to US$1.7 billion as it struggles to compete with its larger South Korean rivals.

With an injection of ¥30 billion (US$313 million) from the government, Elpida will become the first Japanese firm to get aid under a scheme that makes public funds available to businesses hit by the global financial crisis.

The aid package includes a possible ¥20 billion capital injection from Taiwan Memory Co (TMC, 台灣記憶體公司), which was set up by Taiwan to save its own chip sector and had chosen Elpida as a technology partner.

Elpida is Japan’s last hope in PC memory chips in an industry dominated by Samsung Electronics and Hynix Semiconductor Inc. Elpida lost the No. 3 slot to US chipmaker Micron Technologies in the January to March period.

Years of price slides and weak consumer demand have hammered the sector, dragging Samsung’s chip operations into the red and forcing Germany’s Qimonda to file for insolvency this year. Elpida reported a record operating loss of ¥147 billion in the year ended March 31.

“This ensures that Elpida will survive, but can it win?” said Yoshihiro Shimada, chief analyst at research firm SPI Analysis. “That depends on how quickly it can catch up to its competition in shrinking its chips.”

Elpida, which posted its sixth straight quarterly loss in the January to March period, has fallen behind Samsung in using smaller circuitry on its DRAM chips, which are mainly used to power PCs.

Smaller circuitry on semiconductors allows makers to pack more power onto smaller chips and lower costs, but it also yields more chips per wafer and exacerbates oversupply.

Chronic losses have eaten into capital at Elpida, crippling its ability to invest in new technologies.

“It will be bad news for [South] Korean makers, who have benefited from price competitiveness with the most up-to-date production lines,” said Song Myung-sup, an analyst at HI Investment & Securities in Seoul.

The move to support Elpida could trigger protests by overseas rivals. Elpida had earlier petitioned Tokyo to slap a tariff on computer memory chips made by South Korea’s Hynix after it received government aid in 2001 and 2002.

“It would be difficult for South Korea to take the subsidy issue to the WTO. It is possible for Micron to sue Elpida in the US, but given the US has subsidized all sorts of companies there ... it is difficult to justify a case,” Song said.

Analysts also say the aid will not solve the underlying issue of weakening demand.

Elpida said the new money would help it meet debt and corporate bond repayments of ¥127 billion in the year to March, as well as boost capacity at its Hiroshima plant.

The spot price of DRAM chips is around US$1.10 per gigabit of “double data rate 2” memory, far below the US$1.50 to US$2 range Elpida has said it needs to make a profit.

“Elpida is Japan’s only DRAM maker and it has been hit by extremely severe conditions amid the global economic slump, despite its superior technology,” Japanese Trade Minister Toshihiro Nikai told reporters.

Elpida is due to issue ¥30 billion in preferred securities to the Development Bank of Japan in August, which will also extend ¥10 billion in loans, Japan’s trade ministry said.

Private banks will also provide ¥100 billion in loans, the ministry said, while Elpida is considering putting money into Taiwan Memory.